Amid perennial losses, scandals, the obvious lack of capacity to manage them and a cash squeeze, the Nigerian National Petroleum Corporation should drop all schemes to hold on any longer to its four moribund refineries. Among its stratagems, its managers, according to Reuters, hope to raise $1 billion in a prepayment plan with trading firms to refurbish the Port Harcourt complex as part of an overall scheme to rehabilitate all four. Any such plan is unnecessary and wasteful. The refineries have gulped far too much public funds, shut out competition and investment in the oil downstream and entrenched a culture of waste. They should be sold immediately.
As reported by Reuters, the sum
would be spent to refurbish the two refineries in Port Harcourt and repaid over
seven years through deliveries of crude and refined products. There are also
plans to refurbish the other refineries.
The President, Major General Muhammadu Buhari (retd.),
who directly supervises the petroleum ministry portfolio, should initiate the
process to sell the refineries without further delay. This requires dropping
his preference for state control of commercial ventures in favour of full
privatisation and a private sector-led economy. Significantly, almost six years
in office, his regime has not effected major privatisation or concession
transactions despite repeatedly voiced lofty plans by the National Council on
Privatisation and the Bureau of Public Enterprises. However, state-owned
enterprises, said the UNDP, typically discourage investment and competition,
“curtail job creation and deny the country of much needed Foreign Direct
Investment.”
Nigeria’s misery confirms this.
The NNPC continues to pile up losses, wasting resources on idle refining
machinery and personnel. Its Group Managing Director, Mele Kyari, favours the failed rehabilitation route ahead of
divestment. He should drop such notions. The interests of the country will be
better served by immediate asset sale to end the string of losses. The NNPC
admitted that for 12 straight months to June 2020, the refineries had been idle
but incurred N142.07 billion, a depressingly familiar pattern. Combined, the PH
(which has two) and Warri refineries incurred N99.2 billion losses in 2019,
higher than the N89.2 billion losses they posted in 2018. Kaduna Refinery,
which had bled by N64.5 billion in 2018, earned zero revenue! Warri earned only
N921 million in 2019. All four have operated at between zero per cent and 25
per cent for years. Unable to meet domestic demand for refined products despite
their combined 445,000 barrels per day nameplate capacity, the country depletes
foreign reserves importing to fill the gap. According to the National Bureau of
Statistics, N1.09 trillion was spent importing petrol in the first six months
of 2020. In 2019, it said N1.71 trillion was spent, down from N2.95 trillion in
2018. In the 13 months to February 2020, petrol imports cost N2.5 trillion.
Nigeria’s experience in petroleum
refining defies rationality. Its crude production of over 2.3 million barrels
per day made it the world’s sixth largest producer until recently; production
has since been just below 2.0m bpd, making it 11th in 2019, said the US Energy
Information Administration. Although Nigeria is Africa’s largest crude
producer, OPEC figures show that Algeria, with average output of 1.02m bpd, had
refining capacity of 656,800 bpd; though
producing only 136,517 bpd of crude, South Africa’s six refineries refine over
500,000 bpd. Singapore’s case is instructive; producing only 20,170 bpd, the
city-state has refining capacity of 1.4m bpd and its export of over 1.0m bpd
makes it the world’s third largest exporter of refined petroleum products.
No company continues to drop
losses year after year and insists on keeping such assets. Successive
governments and GMDs keep churning out doomed rehabilitation schemes instead of
the sensible option of selling the refineries as they are. From a proposal to
invite the original builders, opaque, scandal-ridden Turnaround Maintenance
contracts to “co-location,” and in-house rehabilitation schemes, the NNPC has,
with the backing of successive presidents, prevented their sale, inflicting
thereby grievous harm on the economy. The delaying tactics have never succeeded
in refurbishing the plants, significantly raised capacity or stopped the fiscal
haemorrhage. The influential World Oil cited four failed rehabilitation
attempts in the 12 years to 2019.
The current regime has also made
repeated promises of restoring them to full capacity. Two former petroleum
resources ministers, Diezani Alison-Madueke, and Ibe Kachikwu, however
acknowledged the dilapidated state of the refineries. A presidential panel
headed by a former Finance Minister, Idika
Kalu, in 2012 recommended their sale within six months.
Buhari should order their
immediate privatisation in a transparent auction, deliberately targeting
competent operators and FDI. While some countries successfully run state-owned
enterprises, corruption, politics, sectionalism, nepotism and even religion
always interfere to make SOEs in Nigeria liabilities instead of assets. A
corrupt country with weak institutions cannot run commercial enterprises
profitably. The country’s dismal showing on Transparency International’s
Corruption Perceptions Index proves how ineffective the “war on corruption” has
been.
Kyari’s plan to borrow for
rehabilitation and thereafter reduce the NNPC’s stake, along the line of the
NLNG joint venture format, will only saddle it with more debt and going by
precedent, may never even materialise. Just sell! And quickly too; let more
investors come in to promote competition as the 650,000 bpd Dangote Refinery
nears delivery. Nigeria has all it takes to be Africa’s refining hub. Others
are active. Saudi Aramco, which raised an IPO in 2019, plans to invest $10
billion on a new 300,000 bpd capacity refinery in South Africa; Angola’s
state-owned Sonangol and UK investment group, Gemcorp, are investing a
three-phased refinery infrastructure project, while Ghana, says the Oxford
Business Group, expects billions in FDI through an energy master plan designed
to attract private investment.
Singapore’s and South Africa’s refining are spurred by private investment. Buhari and the NNPC should spare Nigerians further agony, stop any further expenditure on the moribund refineries and sell them off as they are. Buhari should implement the promised reform of the NNPC to get it out of the downstream sector entirely in a liberalised operating environment. (Punch)
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